No-frills firm in Illinois coaxes good mileage from used-car loans.

NORTHBROOK, Ill. -- The corporate culture at Mercury Finance Co. is not about egos. It is all about the bottom line.

John N. Brincat,. president and chief executive officer, sits at a conference table covered with scratches and boasts that none of the company's executives has a personal secretary. "We don't have any go-lets," he says.

And no potentates either. Permission to Buy Pencils Mr. Brincat is proud that he makes his own airline reservations and adheres to the strict purchasing rules that apply to everyone else. "As the CEO of this organization," he says, "I can't go out and buy two dozen pencils unless I have two people sign off on the voucher."

This low-rent style fits a company that finances used cars for customers with blemished credit. Mercury lends money to people banks won't touch. Typically, its loans run about $5,000.

The risk is great, but Mercury charges its customers a high enough spread - generally 21% - to compensate. And by operating in a professional, cost-conscious manner, Mercury has done a lot to transform an industry whose image, in Mr. Brincat's words, inspires thoughts of "a gravel lot somewhere in an undesirable part of town."

Mercury's track record is enviable by the standard of any industry - 41 consecutive increases in quarterly earnings since its rounding in 1984. After a 1989 initial public offering, Mercury's stock has split six times, and the cash dividend has been increased 10 times.

The Mercury example has inspired others.

Eagle Finance, Libertyville, Ill., recently went public, and First Merchants Acceptance Corp., Deerfield, Ill., has just filed a registration statement. Moreover, Greenville, N.C.-based Regional Acceptance Corp.; TFC Enterprises Inc., Norfolk, Va.; and Minneapolis-based Olympic Financial Ltd. have all raised capital for expansion in the last few years.

Stock analysts are now scouring the ranks of these companies looking for the next Mercury. Many used-car lenders have chalked up equally fast growth rates, but none yet approaches the size of Mercury, which has $1.1 billion in receivables and 232 offices in 24 states.

Typical is Regional Acceptance, with $83 million in receivables and 18 offices, mostly in the two Car01inas. "If Mercury is a superregional, then Regional Acceptance is basically a community bank," says long-time bank analyst. Henry J. Coffey Jr. of J.C. Bradford & Co., Nashville.

Both Mr. Coffey and John J. Mason of Atlanta-based Interstate/Johnson Lane are bullish on the North Carolina company. David Stumpf of Wheat First Securities Inc., Richmond, Va., favors TFC. Robinson-Humphrey Co. recently picked up coverage of Olympic, which lends on both new and used cars to upscale buyers.

Analysts are attracted by a booming market in secondhand cars, possibly the fastest-growing segment of the auto finance business. Used-car demand is growing at 2.5% a year, compared with 0.8% annual growth for new cars.

Banks and automakers' captive finance companies, which dominate the financing of new cars, generally steer away from used cars, or they finance only the best-heeled customers. That leaves the field wide open for companies like Mercury to serve people with less-than-stellar credit records - the same people who tend to buy used cars.

"There is still this very massive blue-collar force out there that needs a primary car," says analyst Katrina Blecher of Gruntal & Co., Chicago. "People are going to need a car to get to work in good economic times or bad. That sub-prime market is Mercury's bread and butter."

Mercury certainly has plenty of room to grow, though it's the largest company in the field. Franchised dealers sold 10 million used cars last year. Mercury, which works with about 12,000 such dealers nationwide, booked 90,680 loans in 1993, less than 1% of the total.

Mr. Brincat says the only limit to Mercury's growth is finding and training enough qualified branch managers. The company operates an in-house training program to speed that process.

Mercury's minimum goal is to increase receivables and profits by at least 25% a year. The company netted $65 million last year, and Mr. Brincat predicts its earnings will reach $85 million this year.. He's almost halfway there; the company earned $40.6 million in the first six months.

Using bank-like indices of profitability, Mercury's results are extraordinary: Return on assets reached 8.51% in 1993; return on equity, 38.9%.

How does Mercury do it? Mr. Brincat says the company focuses on its niche - used car loans - and doesn't try to do anything else. "That's all we do," he says. "We can go ahead and devote all our attention to these loans."

Mike Milunovich of Robert W. Baird & Co. has another answer. "The secret to Mercury is John Brincat," says the Milwaukee-based analyst. "What it takes is one person that has the knowledge and the discipline and the administrative ability to pull it off. And Brincat was that man."

Mr. Brincat, 58, was born in Brooklyn, N.Y., and has spent his entire career in the finance company business. After a stint in the Marine Corps, he joined General Finance Corp. in Evanston, Ill. in 1960, rising to senior vice president in charge of operations.

Finding a Niche

When that company was sold in 1983, Mr. Brincat looked around for other opportunities. His dream was to start another finance company, but as he recalls, "we needed to have a niche - something that nobody else really concentrates on."

That niche' turned out to be financing used cars for military personnel. Mercury Finance, founded in 1984 as a subsidiary of the former First Illinois Corp., established its first offices outside military bases.

During the next few years, Mercury became responsible for generating nearly half of First Illinois' earnings. "It became very apparent that this finance company was kind of the tail wagging the dog," Mr. Brincat says.

The finance company was spun off as a public company in 1989, and First Illinois was sold a few years later to Banc One Corp. Mr. Brincat still sits on the board of Banc One's Illinois subsidiary.

By this time, Mr. Brincat had expanded Mercury's service to civilian as well as military borrowers. One motivation was the growing popularity of leasing.

It has been estimated that about 2.5 million leased cars and light trucks will be coming back to dealers each year by 1997, compared with 470,000 last year. "The point is, these cars will be coming off the lease at some time, which will only further the used car market," Mr. Brincat says.

There are signs that some banks have finally awakened to the potential here.

Charlotte, N.C.-based NationsBank Corp. maintains a $7 billion auto lending portfolio, one of the largest in the nation. In January, NationsBank introduced a program called "New Credit" on a limited, trial basis.

Participating dealerships, which previously referred customers with suspect credit ratings to companies like Mercury, will now give NationsBank a look at some applications.

"The segment that we are most interested in are the folks that have been disadvantaged through circumstances in most cases beyond their control, perhaps because of illness or loss of employment," says John Abadie, president of NationsBank's dealer financial services group.

NationsBank will approve the application if it feels the customer has made some effort to reestablish credit. Mr. Abadie said the program, accompanied by "very modest levels of marketing" has been generating about $4 million in loans a month and was recently introduced to participating dealers in all 14 states served by NationsBank's auto lenders.

Looking for Tenfold Growth

Mr. Abadie says he expects the volume of loans to increase tenfold by the time the program is fully adopted. "I wouldn't say we would compete across the board against a Mercury Finance," Mr. Abadie cautions. "But there is a segment of their market where we would be direct competitors."

Does Mr. Brincat worry about NationsBank, or other competitors?

"We are not threatened in any area that we operate in," he replies, with characteristic self-confidence. "In my opinion, you can double [the competition], and there's still enough room for everyone who wants to do it right.

"Our job is to run faster, work harder, and work smarter than everybody else."